Helping Canadians with Personal Finance Since 2006

Market Turmoil

Unfortunately, anyone who owns equities right now is affected by the current market turmoil. I am no exception and I expect that my net worth statement this month will take a big hit.

Why is the market tanking?

To put it simply, it's because of uncertainty. With sub prime mortgage defaults on the rise, those financial institutions exposed to that particular lender market will take a big financial hit. People are uncertain how far into the economy this will reach. Uncertainty = panic selling. For a more detailed explanation, Globe Investor has a great primer on the credit crunch.

So what do you do in times like this?

Long term investors should expect volatility like this in the market from time to time. Actually, long term investors should get excited when markets dip because of the potential buying opportunities. Good companies are currently being sold off due to panic selling. Financial stocks are getting pummeled because of sub prime exposure. But if you're looking 10 to 20 years down the road, this whole sell off will be a little blip on the map. Stay the course.

Although I am invested deeply into the market, I do have a bit of cash on the sidelines waiting to be deployed. I'm not the type to try to pick the bottom, but I aim to buy when the market starts to turn around.

Which stocks are attractive?

Personally, I think that the Canadian big 5 banks are over sold. Yes, they may go down further because of their sub prime exposure, but in my opinion, I expect that they will bounce back to form in no time. Banks that I'm watching, RY-t, BNS-t, TD-t, CM-t, BMO-t, NA-t along with MFC-t (insurance).

Below is a 2 year chart of the Canadian financials ETF: XFN-t – just another dip?

15 Comments

Nah, it’s a big slide, I called it two months ago elsewhere, but I failed to called my broker. They’re not doing a great job to start with, but I really don’t have much invested so they’ve pretty much failed the three-year test (underperformed in an upward market, lost big in a downward market, I could’ve done that myself).

I noticed the chart, but I wanted to provide a morsel of “technical analysis” that I picked up, but that Google does not offer (try BigCharts.ca). When charting, use the “semi-log” scale. Right now, the difference between 55 and 50 is the same as 30 and 25 (you’re an engineer, I know that you know what I’m talking about :). Semi-log at least let’s you see movement in relative percentages which is really what we care about. That drop looks much smaller in semi-log (and it is smaller percentage-wise).

Aside from my TA advice (son of an analyst), I’m behind you on the bank idea, they’ve just jacked up their rates, they print their own money, they were already on the comeback yesterday. Of course, the CAD took a hit, which is likely very temporary. Personally, for the next few years, I’m sideways on Canada and bearish on the States.

There may be money to be had in the States, but I’d much rather invest elsewhere where new wealth is being created in large sums. Of course, once I dump my broker, I’ll have to research some more details :)

FT,
My only regret is that I do not have much money to invest right now. This is definitely a good timing to average down your price on many stocks. This is one of the advantage of the Smith Manoeuvre or other periodic investment methods, you never buy too much at a high price and you average down when market is falling.

It is funny that you pointed that banks would be good stocks to buy as I am preparing a post for tomorrow on banks stocks ;-)

Certainly capitulation today. This is when you buy. I sold some stocks that were only down a bit to put the money in stocks that were down a lot (for no reason). I invest primarily in the precious metals stocks, so amplify the general market volatility by a factor of 2 at least.
I’m not really concerned though.

I think trying to time the exact bottom is a nerve-racking experience. I heard a lot of “don’t try to catch a falling knife” comments from other brokers in my office. It was something else today, as the TSX was off almost 600 points by lunchtime but clawed back 410 of those point over the afternoon. So if it’s all uphill from here (who knows) then the exact bottom was right when I was ordering lunch today… :)

I can tell you the analyst calls from the streets and overseas are predicting more fear based selling, coupled with programmed-trading triggers – although fundamentals are still firm. Personally, I’m waiting until we lose the volatility before buying – I don’t mind missing 2% to 3% of the first part of the next uptrend – long run it doesn’t make much difference. I think it is quite possible for more losses next week – so, to re-iterate, I’m having all my clients hold off until we have some stability and a clear signal we are through the madness.

I would point out that the yield on Yellow Pages is over 8.5%… do your own due diligence however. But personally, that’s tops on my list.

[…] going as smoothly as planned. First I've had a ton of unexpected expenses followed by a market correction which started in late July. The market correction has affected my August 2007 net worth […]

As per me, the market turmoil is here to stay for some more days. At such situation from stock investing point of view it is really a great buy opportunity looking from at least 4 to 5 years perceptive, but from stock trading point of view, i will use every rise in my selected stock pick to sell.